Fifty-five economists have written to the Financial Times to caution that Jeremy Corbyn is out of line with “the mainstream” of their discipline. What is interesting here is not the professors’ conventional statement of the conventional wisdom, but rather why they felt moved to pick up the pen.

Jeremy Corbyn wins economists’ backing for anti-austerity policies

Read more

“Mainstream”, after all, is not a charge that was ever pinned on the wonderfully whiskered refusenik for Islington North during the first 31 of his 32 years in parliament. But after another, more radically inclined, bunch of experts, headed by former Bank of England rate-setter David Blanchflower, had written to the Observer endorsing Corbyn’s interest in alternatives to austerity, the FT letter-writers sought to shore up the respectability of their profession, by pouring cold water on Corbynite schemes, including “people’s QE [quantitative easing]”, which in essence involves printing money in order to fund public investment.

“A highly damaging threat to fiscal credibility,” read their stern missive in the pink pages, a verdict that is echoed by all three of Corbyn’s Labour leadership rivals, including Yvette Cooper who warns of the dangerous allure of “subversive” economic positions. But what is subversive in politics is becoming less so in economics.

A few years ago any academic who flirted with the potential of the printing presses would have been bolted out of their department. The FT economists do still speak for the workaday “mainstream”, in a profession that is mostly too waylaid with research evaluations and consultancy projects to recall, still less to challenge, what they were taught at college about where money comes from. But the letter-writers themselves felt obliged to caveat their scorn. They decried print-to-spend economics only on the grounds that current debt levels and interest rates should allow for public investment to “be financed conventionally”, by selling bonds. In years gone by, pointing at Weimar Republic-era footage of wheelbarrows full of marks would have been enough. But after the Bank of England has magicked up £375bn of currency through “vanilla” QE, attacking the Corbynite variant requires more subtlety.

The most thoughtful economists are veering further from pre-crisis orthodoxy. Adair Turner is as far as you could get from a cartoon Corbynite. While Corbyn was making his way from Bennite activism to backbench obscurity, Turner was enlisting in the fledgling Social Democratic party (SDP), and setting out on a successful career that took in banking, consultancy and heading up the CBI.

Rampant inflation seems a remote prospect now, but that would change if the government printed its way out of trouble

Days after Lehman Brothers came crashing down in 2008, he was installed as chair of the Financial Services Authority, finding himself in the midst of a crisis that neither he nor any of his peers had seen coming. But in his forthcoming book Between Debt and the Devil, he frankly describes how the banking meltdown has forced him to go back and re-examine financial first principles.

For Turner, half-familiar facts – such as the reality that only 2% of British money exists as cash, with the other 98% being invented by private banks – acquired a mighty new significance after irresponsible bank lending stoked the speculation that produced the great bust. Mindful of the dangers of excessive private as much as public debt, he sees a need both to grip the overall growth of private debt, and to prod it away from endlessly chasing rising house prices, and towards productive investment. And if such restrictions would leave the economy short of purchasing power, then it will fall to the government to make up the missing money directly – the point where the worlds of Turner and Corbyn collide.

Will Atlas shrug in face of Corbynomics? | Letters from Professor Paul Levine and others

Read more

Even if you don’t like the detail of people’s QE, it is a suggestion that asks the right questions, which is always one important task for opposition proposals. But there are other respects in which I suspect the likes of Cooper are right to warn that it could prove to be political poison. For a start, the print-to-spend principle offends the “nation as family” metaphor that frames all discussion of the public finances. “Cash-strapped households can’t print money, so why should governments,” voters will ask. The left is right to object to this misleading comparison, but Corbyn and company will struggle to come up with a compelling alternative image for the economy that can displace it.

They deserve good luck in that, but there is another – more fundamental – concern with Corbynomics. Rampant inflation seems a remote prospect now, but that would soon change if the government were freed to print its way out of trouble. Turner discusses strict cash-creation limits and institutional safeguards needed to prevent the currency being debauched, while team Corbyn talks more vaguely about ensuring that the taps are turned off when full employment is reached. But Middle England would surely ask whether a government led by this man, who has never before held the power to make thorny financial decisions, would know when to declare the party over.

Still, the fact that Turner, the sort who regarded New Labour as the SDP for slow learners, now feels drawn to the same questions as Corbyn is instructive. It is a reminder that the Labour insurgent has not come entirely out of the blue, but is instead swimming with a post-slump intellectual tide. Meanwhile New Labour, which was never shaken up by the crash as much as it should have been, is left looking decidedly old.